Investment Options for 'Fiscal Cliff' Bears

NEW YORK ( TheStreet) -- I've been willing to buy the conventional wisdom that some deal will be done to avert the "Fiscal Cliff." I even think it's an opportunity to get some great companies cheap.

As this was written on New Year's Eve, we still had no deal. But even if Congress treats the Jan. 1 deadline like the late Douglas Adams -- he said "I love deadlines. I like the whooshing sound they make as they fly by" -- a deal can still get done later this week, even next week, with minimal harm.

Yes, there will be a lot of uncertainty, and accountants will be churning out overtime. A final deal, reached this coming Friday, would doubtless hold taxpayers harmless for the complications. And everything in it would be a tax cut, while in 2012 Republicans are being told to vote for tax raises. It makes a difference.

I've told you what bulls should do in the event of a cliff disaster. But what should bears do, other than take Bette Davis' advice of "Fasten your seat belts, it's going to be a bumpy night."

Sell Defense Stocks : The least-mentioned provision in the 2011 deal creating the cliff is a 9% cut in the defense budget, starting tomorrow. Health care for soldiers would be cut, and Lockheed-Martin (LMT) is talking of an immediate layoff of 10,000 workers, according to Bloomberg.

Other big contractors like Boeing (BA) , Northrup Grumman (NOC) and General Dynamics (GD) also get downgraded in this case.

So would companies you don't always associate with defense, like Honeywell (HD) and General Electric (GE) . Business Insider has a list of the 25 largest military contractors, all available for shorting.

Sell Oil and Gas : If the U.S. goes into recession it's going to hurt the price of oil, since we're the largest energy user. Unfortunately that's going to hurt a lot of U.S. companies since we're becoming one of the largest producers again. This is going to be bad news for integrated oils like Exxon Mobil (XOM) , Chevron (CVX) and BP (BP) , but big U.S.-based oil production outfits like Anadarko (APC) and Devon (DVN) are still going to sell what they produce, albeit at lower prices.

I wouldn't be surprised if this makes Chesapeake Energy (CHK) worthless, as natural gas can't be exported as oil can. Gas is already selling at near its production costs.

Sell Canada : Falling oil prices benefit suppliers of lower cost reserves. So a U.S. recession is very, very bad for Canadian tar sands. I might even short the Canadian iShares ETF (EWC) as a speculation, given the leverage that economy has to the sands and the political turmoil that will result from falling demand for what it supplies. If we go over the cliff, and especially if oil prices decline as a result, we're taking Canada with us.